Wednesday, February 4, 2015

Diversify Your Passport Portfolio For Only $500,000

Such a deal! The U.S. Government allows up to 10,000 foreign citizens per year to flat-out buy permanent resident status in the United States, if they invest $1,000,000 in a business or only $500,000 in a targeted employment area, i.e., a high unemployment or rural area.

Well, technically, it's conditional permanent residence, says the U.S. Citizenship and Immigration Service (USCIS), but the conditions are only loosely enforced, according to ABC News.

Whistleblowers: US Gave Visas to Suspected Forgers, Fraudsters, Criminals:
An ABC News investigation found that in addition to reaching wealthy foreign investors, the program [see this description] has become a magnet for those seeking to sidestep the scrutiny of the traditional immigration process. In one case, immigration officials pushed through a visa application from Chinese investor in a Las Vegas hotel project despite an internal review that found the investor had previously been turned back at the border, and much of his visa application had likely been fabricated, immigration records show.

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The document summarizes 41 investigations, some open and some now closed, into allegations ranging from espionage to fraud to drug trafficking involving investors in various EB-5 investment projects.

One regional center [a private sector entity certified by Homeland Security to recruit foreign investors for specific business ventures that will qualify for EB-5 visas] run by an Iranian-born businessman living in Beverly Hills was approved to raise roughly $25 million in investment money from foreign sources even when one of his businesses was being raided by agents. Federal officials told ABC News the businessman is suspected of allegedly smuggling banned items to Iran.

Another regional center raised money from Chinese investors to finance the construction of federal buildings, including an FBI headquarters building in San Diego, raising what one internal document called “national security concerns” that “pertain to Chinese investors having visibility to FBI blueprints/information.”

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In 2013, then-Virginia gubernatorial candidate Terry McAuliffe was accused by political opponents of trying to prod federal officials to approve visas for investors in an electric vehicle start-up venture he ran. He denied that he sought undue influence. In 2014, questions about an EB-5 investment scheme in South Dakota became grist for political ads targeting then-U.S. Senate candidate Mike Rounds, who was attacked for his role in oversight of investment projects while he was governor. Rounds called the attacks political and "inaccurate" and "defamatory."

McAuliffe is now Governor of Virginia, and has - so far as I can tell - given up his ownership in that tiny electric car company. Here's an excerpt from a 2013 WaPo story about the cozy connections between politicians, businessmen, and government officials that facilitated McAuliffe's access to foreign sources of capital.

An electric-car company co-founded by Virginia gubernatorial candidate Terry McAuliffe (D) is being investigated by the Securities and Exchange Commission over its conduct in soliciting foreign investors, according to law enforcement documents and company officials.

In May, the SEC subpoenaed documents from GreenTech Automotive and bank records from a sister company, Gulf Coast Funds Management of McLean. The investigation is focused, at least in part, on alleged claims that the company “guarantees returns” to the investors, according to government documents.

GreenTech has sought overseas investors through a federal program that allows foreigners to gain special visas if they contribute at least $500,000 to create U.S. jobs. Gulf Coast, which is run by Anthony Rodham, the brother of former secretary of state Hillary Rodham Clinton, seeks investors for GreenTech and arranges the visas.

The story noted that McAuliffe's GreenTech and Tony Rodham's Gulf Coast shared office space while they tag-teamed Chinese investors. Cozy, you see?

The [subpoenaed] documents counter the impression left last week by a top U.S. immigration official, Alejandro Mayorkas, who testified in front of a Senate panel that he met with McAuliffe on one occasion, “and that was the extent of the interaction.”

The documents show that Mayorkas and other senior DHS officials had a dozen e-mail and telephone contacts with McAuliffe, Rodham, and other representatives of GreenTech and Gulf Coast.

Mayorkas, who has been nominated to be second-in-command at DHS, is under investigation by the agency’s inspector general for allegedly providing special treatment for GreenTech. The investigation is preliminary and has not produced any findings of wrongdoing. Nonetheless, Senate Republicans have said they will not consider Mayorkas’s nomination until it is completed.

The new documents also show that some career DHS employees believe that Mayorkas broke protocol by altering a draft decision about GreenTech and how it handled stock returns to investors.

Whistleblowers have alleged to Senate investigators that Mayorkas became overly involved in GreenTech’s case.

Where would we be without our whistleblowers? Now, if only there were someone in Washington who cared enough to end this cash-for-visas scheme.

And quite a slick scheme it is. I found a nice description of the EB-5 visa business model in a Fortune magazine story:

At the heart of the program is an unusual trade: Because the immigrants care far more about getting a green card than anything else (their families get visas too), they’re willing to accept a token financial return. In fact, when “administrative” fees of about $50,000 are added, they’re typically paying for the privilege of sinking $500,000 into a U.S. venture for five to seven years—with no guarantee that they’ll ever get it back. And in part because of distance and language barriers, the targets of EB-5 pitches seem ill-equipped (or disinclined) to assess the business risks.

Though the government issues the visas, private developers reap the benefits. After middlemen get their piece, the cost of EB-5 capital runs between 4% and 6% a year—less than half of what developers would typically have to pay for mezzanine debt [which is defined here] or to equity investors. Raising $100 million through EB-5 can add $20 million to a project’s bottom line.

The growing demand for EB-5 financing is being met largely by new Chinese millionaires, eager for greater freedom and less pollution, or to send their kids to college in the U.S. More than 80% of the program’s applicants now come from China, making it the mother lode for EB-5 prospecting.

-- snip --

Many EB-5 attorneys represent both the project and the investors, a clear conflict, and take undisclosed fees from developers—up to $60,000 per immigrant—to steer clients to particular projects ... The EB-5 program isn’t overseen by a financial regulator but by the U.S. Citizenship and Immigration Services (USCIS), part of the Department of Homeland Security. Accustomed to processing visas and conducting immigrant background checks, USCIS is ill-equipped to review business plans, job-creation studies, and securities offerings. The SEC retains the power to police fraud. What that means is the agency has no mechanism to sniff out a problem until it has exploded, at which point the agency can only clean up the mess.

-- snip --

They are one of the oddities of the EB-5 system. “Regional centers,” which are legally required and USCIS-certified, sound as if they are federal offices, but they’re not. They are typically private, profit-making operations that pool EB-5 money for development projects. Oh, and there’s one other quirk: These seemingly independent operations are often launched and operated by the very developers who are raising money, giving them an extra measure of control.

The regional centers that operate independently can be highly lucrative. Centers usually charge a developer about 2% annual interest for at least five years on whatever amount of immigrant capital they raise. A $60 million deal can thus generate $6 million or more in income. One major operator, the New York City Regional Center, expects its total income on just four large ventures to total $50,187,500, according to a worksheet prepared in a lawsuit between feuding business partners.

Like banks and Wall Street firms, regional centers sell securities and handle millions. Yet there are no rules on who can own or run a center, and no audit requirements. A regional center doesn’t have to report publicly on its performance, identify its principals, or disclose any financial, legal, or regulatory problems they have encountered.

These Chinese investors, and the occasional non-Chinese, are approved for permanent resident status by USCIS, even though it has no expertise in evaluating finance or investment proposals. The Federal agency that polices investment fraud has no involvement in EB-5 visa matters at all unless and until it is called in after a project becomes a disaster. The foreign investors, our new Economic Citizens, are hooked up with their investment opportunities by unregulated middlemen who work for the project developers and profit from both ends of the deals they put together. And this money-making machine is fueled by visas that are teased or coerced out of the bureaucracy by politicians who are exchanging favors with the project developers and each other. 

Wow, it sounds like everybody wins. Except for anyone who cares about what ABC News called "the traditional immigration process" - and law - or worries about the national security implications that follow when that process is abused.

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